The Supreme Court on Thursday sought response from Reliance Infratel as to why it should not be asked to pay service tax to the tune of Rs 300 crore allegedly on services provided to its parent company Reliance Communications (RCom).

A bench headed by Chief Justice HL Dattu issued notice to Reliance Infratel on an appeal filed by the commissioner of service tax alleging service tax evasion to the tune of Rs 307 crore by the Anil Ambani company.

Challenging CESTAT’s March order that held that no service tax liability arises on loans and advances if it is revealed in the audited balancesheet, the service tax department argued that the amount of Rs 1,483 crore was nothing but an advance towards the consideration for services and, therefore, it needs to be considered as an amount on which service tax liability arises as per provisions of Section 67 of the Finance Act, 1994.

Additional Solicitor General PS Patwalia told the court that in business it is unusual to provide interest-free loans and that too of huge amounts. He submitted that the repayment started after investigation commenced and the repayment was an afterthought to show that the amount is a loan.

According to the department, the financial support given to Reliance Infratel by RCom in terms of the Master Service Agreement dated April 10, 2007, was in the nature of advance for taxable services rendered or to be rendered by Reliance Infratel and is required to be set off against the bills that would be raised later by Reliance Infratel on RCom.

Reliance Infratel moved the tribunal contending that the sum of Rs 1,483 crore received by Reliance Infratel from RCom is a loan by way of inter corporate deposits.